At this point I’m sure you’re all well aware of just how much fee revenue the Ethereum network generates every day - it’s anywhere from $30 million to $80 million depending on network use for that day. Of course, this fee revenue is paid in ETH and most of it (70-80%) is burned thanks to EIP-1559 which makes this is a pseudo-dividend that is paid out to all ETH holders. Ethereum isn’t the only revenue powerhouse though - there are plenty of applications that also generate a healthy amount of revenue.
When looking at revenues for applications there needs to be a delineation made between protocol revenue (earnings) and supply side revenue (sales). A simple example of this is a protocol like SushiSwap that pays 0.25% of the 0.3% trading fee out to liquidity providers (the supply side) and 0.05% to the protocol which then goes to SUSHI stakers. You can further break down this down depending on the protocol to account for the revenue that token holders/stakers get, the revenue that the protocol DAO gets, and the revenue that goes to any other related entities.
What I love about Ethereum applications is that everyone can see the revenue numbers in real time and they cannot be faked. This is because it’s all on-chain, publicly verifiable and available in real-time using numerous different data sources. This is very different to the traditional investing space (stocks/equities) because usually investors need to wait for quarterly earnings to be released in order to get an up-to-date view of company earnings and profits. What makes this even cooler is that there are tools like Dune Analytics that allow anyone to build their own customized dashboards using public on-chain data that they can share with the world.
I find it funny that even though investors have access to this plethora of information, the crypto markets still revolve around marketing and narratives above all else. I mean, there are plenty of DeFi projects with very low price/earnings (PE) ratios but they are ignored because they are considered “boomer” projects because most participants are interested in the more “degen” projects. There’s also a popular “suits vs frogs” movement where retail investors (the frogs) are rallying against the VCs/funds/insiders (the insiders) and one form of protest is to not buy the tokens that they consider to be too heavily insider-allocated (even if they are good buys). I can sympathise with this fight, but I think once more traditional investors start seriously allocating to this ecosystem they will want to invest in things that they can easily analyze using the tools and metrics that they are used to.
The crypto markets are probably going to remain wildly inefficient and marketing/narrative/meme driven for quite a while. I actually wonder sometimes if the crypto markets will ever become efficient and if we’ll ever have a top 10 that makes sense based on fundamentals - maybe not for a decade or longer. It’s not all bad news though - if you know how to play these narratives then you can have a very profitable experience - but you best stay on your feet when doing so because the metagame is always changing.
Have a great weekend everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.
Thanks man - great piece. What are some examples of 'low PE' protocols you refer to?
Marketing is my business and my daily obsession, so maybe I'm biased, but is there a market that is NOT dominated and driven by narrative and storylines?
Genuine curious question, as it seems like more mature markets like stocks are also driven by narratives that come from legacy media, for example. But maybe it's just more pronounced in crypto because the narratives are decentralized?